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Why Bell’s Astral grab is even worse than it looks

[First, a commercial break. Coming soon – an interview with Dwayne Winseck of Carleton University, Canada’s leading expert on vertical integration and concentration of ownership. Our in-depth hour on Astral and related issues will be posted in three parts. Meanwhile, you can check out Dwayne’s August 9 blog post: “The Significant Impact of the Bell Astral Deal on Media & Internet Concentration in Canada.” His filing to the CRTC’s Astral proceeding is uploaded in pdf, here.]

Let me offer you a couple of compelling reasons to hate the Bell/Astral deal that don’t seem to have garnered much attention…

The CRTC is obliged to handle broadcasting decisions in terms of cultural abstractions, while it routinely ignores the welfare of individual Canadian consumers in any cost-benefit analysis.

The CRTC is saddled with an antiquated framework for assessing the benefits and harms that may result from large acquisitions. This problem stems from the discrepancies between the goals of the 1991 Broadcasting Act and the 1993 Telecommunications Act. They are the chief enabling statutes that shape the CRTC’s role as regulator. In the broadcasting sector, our Media Fathers in Parliament and the civil service cared mostly about ensuring we have tons of Canadian content that fulfills a long list of cultural policy goals. These goals are collectivist, i.e. they sacrifice the needs and interests of individual Canadians at the altar of national identity and cultural sovereignty.

On the telecom side, by contrast, policy goals have always been tied to consumer protection: protection originally from the telco monopolies, in support of fair rates, decent service, coverage of high-cost areas, etc. Unfortunately, these factors are not captured by the rules applying to TV (and radio). Think of it this way. Just as Parliament was passing the amended Broadcasting Act in 1991, Tim Berners-Lee, Robert Cailliau and their colleagues at CERN launched the world’s first Web server on the public Internet. That was 21 years ago. Quite a lot has changed in that time, but you’d never know it from inside a CRTC hearing room.

The great Canadian policy hoax

Canadians are treated in proceedings like Astral as a target market for sellers of Canadian content, not as participants with their own needs – including the need to be protected from anti-consumer behavior on the part of the five vertically integrated congloms that own almost everything that moves across our media landscape. The CRTC’s mandate is to investigate only the cultural implications of acquisitions like Astral. The Broadcasting Act effectively obliges the CRTC to look after a tiny subset of our citizenry: the folks who produce, distribute and exhibit Canadian content. The net effect is that in broadcasting, the Commission always looks at their task as a series of supply-side decisions. And that in turn relies on one of Ottawa’s great policy hoaxes.

On the surface, the Astral discourse and others like it are about cultural policy. But Ottawa’s real concerns derive from industrial policy, whose aim is to keep the stakeholders sufficiently protected and subsidized to keep churning out whatever Ottawa deems to be enough Cancon to keep the citizenry from morphing into ersatz Americans. Conventional broadcasting is an industry in which mainstream citizens don’t get to be producers of content. You’re just a spectator. Moreover, it’s you, not the soap flakes, that are the product when you watch, since it’s your eyeballs the network is selling to its advertisers. You can’t skip the commercials: your are the commercial, my friend!

This sad commercial reality is further exacerbated by the paternalistic provisions of the 1991 Act’s “Broadcasting Policy for Canada.” This 1,100-word preamble is an elaborate fairy tale which holds that everthing on TV and radio is part of a single system whose highest goal is “the maintenance and enhancement of national identity and cultural sovereignty.” Years ago, some guys invented a great alternative to cheesy, top-down, one-way, least-common-denominator media. It’s called the Internet. A lot of our Cultural Deciders dislike the Internet, because it has changed the world and made old media business models fall apart, forcing everyone to wake up and get with the program. So far, that program, especially among cultural nationalists, is aimed at turning the public Internet into their own special delivery platform for Cancon.

Non-tangible, non-public, “tangible” “public” benefits

The best evidence to support my claim that the buying and selling of broadcasting properties has little to do with the public interest at large lies in those 10% transaction benefits (actually, 10% for TV, 6% for radio). A benefits requirement might have been a good idea if the policymakers had managed to reach past a mountain of assumptions about what’s good for Canadians. But federal communications policy has always been decided by a gang of mandarins who never saw an insider assumption about your media welfare they didn’t like.

My two allegations, about our antiquated policy framework and benefits packages, are closely connected. The biggest challenge for the protectionist cultural policy we’ve pursued for decades isn’t about culture. It’s about getting our domestic licensees to cough up money to support the production of Canadian TV shows, movies, etc. The licensees game the system by resorting to two tactics. The first is wrapping themselves in the flag and pretending to be in the business of loving Canadian content. Patriotism has never offered a handier refuge for scoundrels.

The second gimmick involves the alleged size of our media market. It’s true our domestic market is too small to recover the costs of expensive TV drama and feature films. On the other hand, it isn’t at all true that the major firms have to keep scaling up through M&A activities in order to compete with the international gorillas like Time Warner and News Corp. We’ve been hearing this malarkey for decades. One of the most significant revelations to come out of Dwayne’s research on concentration concerns the size myth. Here’s how he describes the issue in his CRTC filing on Astral (p.26):

“Canada does not have a small media economy but the eighth largest in the world. The growth of the network media economy in Canada over time has also been brisk relative [to] the other largest media economies in the world. This is a crucial point because Bell bases much of its justification for its bid to take-over Astral on the ground [that] firms like the latter need to bulk up and [be] integrated into enormous TMI conglomerates so as to better compete with foreign, largely unregulated digital media giants that are making increased incursions into Canada, thereby posing a direct threat to the fabric of communication, media and cultural policy in this country” (my emphasis; TMI is telecom-media-Internet).

So how do the benefits fit into this bigger picture? Here’s how Playbacksummed up the main expenditures proposed originally by Bell:

“Bell proposes spending $96 million to develop and produce indie Canadian TV programming of national interest, $61 million in radio benefits, another $40 million to make Canadian programming more widely available in Canada’s northern regions, and $3.5 million for Bell Let’s Talk Day, an initiative to combat and discuss mental health issues.”

What’s mental health doing in the middle of a production slate? Well, the guideline used by the CRTC in allocating benefits is 85% for “on-screen” and 15% for “social.” In its PN on the September hearing (Broadcasting Notice of Consultation CRTC 2012-370 – pdf here), the Commission reminds us what a good job it has done in managing benefits:

“The Commission, in applying its benefits test, has been consistent and rigorous in requiring that (1) expenditures proposed as tangible benefits be truly incremental; (2) such expenditures be directed to projects and initiatives that would not be undertaken or realized in the absence of the transaction; and (3) applicants demonstrate that expenditures proposed as tangible benefits flow predominantly to third parties, such as independent producers.”

As we can see, the Commission makes no bones about who gets the lion’s share. But how exactly is that a “public” benefit? I defy anyone to show how giving money to program-makers has brought demonstrable improvements to the lives of disinterested outsiders sitting in their living rooms. What would an improvement based on enhancing our cultural identity even look like? Since the dawn of television, Canadians have voted with their remotes overwhelmingly for prime-time American drama over Canadian fare. Has that diminished the lives of the Canadian audience? Will more “shelf space” for Cancon on every platform make end-users happier or more patriotic? These are of course rhetorical questions, the kind that never get asked in Ottawa, because our cultural policy is its own justification. Like motherhood and apple pie, the “benefits” are simply taken for granted. S’matter, you don’t like apple pie?

Back in May, when the debate on the current benefits began, Michael Geist wrote a post entitled “Isn’t There a Better Way to Spend $750 Million?” That’s the staggering sum of money collected over the last few years from our favorite conglomerates in benefits, virtually all of it earmarked for content providers. What’s ironic about the benefits system is that it provokes hysterical accusations from cultural stakeholders like the Writers Guild about how the self-serving congloms are trying to keep as much money as possible for their own projects. The August filing by the WGC (uploaded here) makes it eminently clear they aren’t trying to spread the wealth to, say, Canadians with mental health needs. On the contrary, they sound just like the greedy congloms on the other side of the table (para 7):

“BCE’s allocation of 68.8% towards onscreen benefits is unacceptable. We urge the Commission to revise this allocation to meet the Commission standard of 85%. Not only does it fall far below the standard, this allocation is even lower than previous exceptions to the rule including the 71.6% record low when BCE acquired CTV. Secondly, the proposed social benefits are inappropriate. The allocation of $40 million to BCE’s subsidiary Northwestel has no relation to broadcasting. It is a telecommunications and infrastructure cost which the Commission has repeatedly asked the company to undertake.”

Even if the Guild and its sister cultural lobbies did feel a little more like sharing, we aren’t going to see a penny of benefits going into oh, say, for example, fast, affordable broadband any time soon. What a ridiculous notion – that’s not even broadcasting! What’s Internet access got to do with anything? How’s that going to pay for lunch?

Michael seems to be thinking along the same lines. As he notes in his post, “producers simply want millions allocated toward new programming and other groups are happy to scoop up whatever is left.” But in this country, even greater harm flows from this money-grubbing than just wasting $750 million on TV programs that may or may not find an audience:

“While the beneficiaries welcome the benefits payments, the entire system leads to questionable expenditures and conflicted policy. Groups that might otherwise raise concerns about unprecedented marketplace consolidation mute their criticisms for fear of being shut out of the benefits payday. The purchasers build the ten percent contribution into their transaction cost, direct much of the money to projects that further their own self-interest, and use the system to deflect broader policy concerns” (my emphasis).

In other words, this perverse system of raising money for programming ensures that those who make the programs will, by their silence, encourage the CRTC to overlook the harm visited on the rest of us by adding greatly to Bell’s market power. Moreover, it’s completely fatuous for the Commission and other stakeholders to claim broadcasting has got nothing to do with infrastructure.

What do you think will happen to your Internet service as a Bell sub when the company has invested millions more in content, which it will protect from competition any way it can? More content means even more motivation and opportunity to fiddle with your connection to discourage you from watching too much Netflix. If you think the CRTC’s ITMP framework has finally put a stop to screwing with your connectivity, think again.

As Pete Nowak reports in his August 17 blog post, “Tests show CRTC’s anti-throttling rules are useless,” we’re still setting world records for ISP throttling. Based on the latest global M-Lab test results, we’re still getting screwed:

[Bell] was found to be throttling 77% of connections in the first quarter of 2012. Not only is that good enough for the global silver medal to Rogers’ gold, it’s also a 5% increase from the previous quarter. That’s a strange result in light of a December letter to the CRTC, where Bell said it “will withdraw the shaping of P2P traffic on the companies’ networks, with regards to both retail and wholesale traffic, effective 1 March 2012.”

I think that’s one of the issues Michael was referring to when he noted the integrated ISPs use the system “to deflect broader policy concerns.” Which brings me conveniently to a final, loaded question…

If you had to choose, would you be more concerned about your kids being able to watch Canadian television programming of national interest, whatever that is, or being able to access the Internet to enrich their lives through world-class connectivity, without data caps, throttling, misrepresentation and anti-consumer behavior?